TMI Blog2016 (10) TMI 214X X X X Extracts X X X X X X X X Extracts X X X X ..... ady available on the record in the original assessment proceedings. - Decided against assessee Disallowance of interest paid to the partners towards the capital contribution - Held that:- Since the assessee had admitted that the amount of ₹ 62,65,,456/- as unexplained cash deposits of the assessee, though, the said amount was applied by the assessee to the capital account of the partners. In our view, the assessee cannot claim the interest on its own amount. The interest is only payable to the assessee if the amount is brought in by the partners as a capital or the capital is borrowed by the assessee from the third party. Since the assessee has admitted that the amount brought in was the bogus capital of the assessee, therefore, the assessee is not liable to the deduction in the payment of the interest to its partners. In our view, the income tax is required to be calculated in the right hands i.e assessee and the submissions of the assessee that the said amount has already been declared by the assessee’s partners in the individual returns of income is of no consequences. For the default or wrong application of the interest by the partners in their returns of income will n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... satisfaction, thus the consequent order passed deserves to be held bad in law. 1.2 That the Ld. CIT(A) has further erred in ignoring the fact that the information of audit party on the issue of law cannot be made a ground for re-opening the assessment, thus the order so passed deserves to be quashed. 2. On the facts and circumstances Ld. CIT(A) has grossly erred in upholding the disallowance of the interest of ₹ 8,66,831/- made by ld. AO which was paid to partners while the capital contribution was made by the partners in the firm and the partners have already been taxed on such interest in their return of income, thus disallowance so upheld tantamount to double taxation and therefore, deserves to be deleted. 2. The brief facts of the case are that the assessee is a partnership firm, engaged in the business of trading of marbles. For the year under consideration, the assessee filed return of income on 26/09/2008 declaring total income of ₹ 36,75,480/-. The assessment was completed vide order dated 25/11/2010 at a total income of ₹ 99,40,936/- by making addition of ₹ 62,65,456/- being unexplained cash deposit made by the assessee in the part ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... previous withdrawals therefore on this account the assessee his liable to get benefit of the same. The assessee has also claimed credit of ₹ 12,54,544/- for the cash payments shown as sundry creditors in the preceding years of Smt. Durga Devi Somani in her individual capacity which have been offered-for taxation and accordingly taxed therefore written back in their books. In support thereof the assessee has filed copy of the assessment order of ITO, Kishangarh dated 21.12.2009 which confirms the facts. Therefore the assessee is allowed credit of ₹ 12,54,544/- thus on this account there will be a net addition of ₹ 28,80,456/-, (46,35,000/- - 5,00,000/- - 12,54,544/-) In the case of Sangeeta Somani the assessee has made cash deposits of ₹ 39,35,000/- out of which- 5,50,000/- were rotated out of the withdrawals made from the same account. Therefore the assessee is liable to get benefit of ₹ 5,50,000/-, thus the net amount to be added for taxation as unexplained cash deposits is ₹ 33,85,000/-(39,35,000- 5,50,000). In view of above discussion the total addition on account of unexplained cash deposits made in partners accounts comes at ₹ 6 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lves and not by the firm and therefore, it was contended that the capital was brought by the partners in the firm and in the surrender letter, merely confirmed to deposit the tax on the surrendered amount. It was further submitted that the tax was paid by the firm but was borne by the partners. It was further submitted that both the partners shown the interest received by them in the return of income in the said assessment year. Thereafter, the assessee relied upon the various judgments and submitted that the proceedings U/s 148 of the Act be dropped. However, the ld Assessing Officer had not agreed with the contentions of the assessee and has therefore passed the assessment order thereby revising the assessment order and recomputed the total income of the assessee firm. The order of the ld Assessing Officer passed in the assessment proceedings are as under:- It is worthwhile to mention here that during original assessment proceedings, the assessee itself requested vide letter dated 24.11.2010 to tax the undisclosed capital of ₹ 62,65,456/- in the hand of the firm. The assessee itself agreed that the capital introduced is bogus capital, therefore the reply filed at this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee are on their own facts and are not applicable in the case of the assessee as they relate to the taxing of the income which was not at all mentioned in the reasons for reopening the assessment. In view of above discussion, this ground of appeal is dismissed. 4. Now the assessee is in appeal before us. The ld AR of the assessee has submitted as under:- Under these grounds of appeal the assessee has challenged the validity of initiation of reassessment proceedings u/s 148 of the Act as well as the completion of assessment u/s 147/143(3) of the Act. In this regard it is submitted that during the course of original assessment proceedings, the fresh capital contributions made by the partners in their capital accounts was voluntarily surrendered and it was requested that the same may be taxed in the hands of the firm. After considering the surrender so made and further after duly examined the books of accounts and details filed of the interest paid by assessee to the partners on their capital the order was passed u/s 143(3) on 25.11.2010, copy enclosed, wherein the interest payment to the partners was not doubled and no disallowance was consciously made by the Ld. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Vs. ACIT (Del.) (v) 114 ITD 69 Asstt. CIT Vs. O.P. Chawala (Delhi) (vi) 119 TTJ 379 ITO Vs. Smt. Indra Devi Gupta (JP) (vii) 59 DTR 221 Virendra Kumar Agrawal vs. ITO (Mumbai 'F') (viii) 122 DTR 131 Avtec Ltd. Vs. Dy. CIT (Dei.) (ix) 157 ITD Issue 1 Weekly Browser Page 11 Adani Developers P. Ltd. Vs. ITO, Ward 1(1) [2016] 66 Taxmann.com 125 (Gujarat) (x) CIT Vs. Indian Sugar General Industry Export Import Corpn. Ltd. [2008] 170 Taxman 229 the Delhi High Court The sum and substance of the above said judgment that once the ld Assessing Officer has confirmed and has passed a reasoned order, the it is not permissible in law to disturb the final assessment made by the ld Assessing Officer on the basis of the same material available with the ld Assessing Officer. It was submitted that the presumption in law is that if the material is available on record, then the ld Assessing Officer should have applied his mind and gone through the record. Merely by not making any comment in the assessment order the revenue cannot say that the ld Assessing Officer has not applied his mind and therefore, no opinion has been framed on that issue. 5. On ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cope of propositions 2 and 4 enunciated in Kalyanji Mavji's case. Proposition (2) may be briefly summarised as permitting action even on a mere change of opinion . This is what has been doubted in the Indian Eastern Newspaper Society's case (supra) and we shall discuss its application to this case a little later. But, even leaving this out of consideration, there can be no doubt that the present case is squarely covered by proposition (4) set out in Kalyanji Mavji Co. (supra). This proposition clearly envisages a formation of opinion by the Income-tax Officer on the basis of material already on record provided the formation of such opinion is consequent on information in the shape of some light thrown on aspects of facts or law which the I.T.O. had not earlier been conscious of. To give a couple of illustrations, suppose an I.T.O., in the original assessment, which is a voluminous one involving several contentions, accepts a plea of the assessee in regard to one of the items that the profits realised on the sale of a house is a capital realisation not chargeable to tax. Subsequently he finds, in the forest of papers filed in connection with the assessment, several inst ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er Society's case (supra) has warned that this line of cases cannot be taken to have been overruled by Kalyanji Mavji (supra). The second paragraph from the judgment in the Indian Eastern Newspaper Society's case earlier extracted has also reference only to this situation and insists upon the necessity of some information which make the ITO realise that he has committed an error in the earlier assessment. This paragraph does not in any way affect the principle enumerated in the two Madras cases cited with approval in Anandji Haridas [1986] 21 S.T.C. 326. Even making allowances for this limitation placed on the observations in Kalyanji Mavji, the position as summarised by the High Court in the following words represents, in our view, the correct position in law: The result of these decisions is that the statute does not require that the information must be extraneous to the record. It is enough if the material, on the basis of which the reassessment proceedings are sought to be initiated, came to the notice of the Income-tax Officer subsequent to the original assessment. If the Income-tax Officer had considered and formed an opinion on the said material in the original ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on or query in writing had been raised by the Assessing Officer. The aspects and questions examined during the course of assessment proceedings itself may indicate that the Assessing Officer must have applied his mind on the entry, claim or deduction etc. It may be apparent and obvious to hold that the Assessing Officer would not have gone into the said question or applied his mind. However, this would depend upon the facts and circumstances of each case. The Hon ble Delhi Court in the case of CONSOLIDATED PHOTO AND FINVEST LTD. Vs. ASSISTANT COMMISSIONER OF INCOME-TAX [2006] 281 ITR 394 (Del) has held as under: 10. It is common ground that in the present case the Assessing Officer had not received any additional information from any outside source or quarter but the fact that there was no such information did not make any material difference. Action under section 147 was permissible even if the Assessing Officer gathered his reasons to believe from the very same record as had been the subject-matter of the completed assessment proceedings. What Mr. Vohra argued was that the Assessing Officer could not, on the basis of the very same material as was available to him at the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion has not impressed us. The assessment order did not admittedly address itself to the question which the Assessing Officer proposes to examine in the course of reassessment proceedings. The submission of Mr. Vohra that even when the order of assessment did not record any explicit opinion on the aspects now sought to be examined, it must be presumed that those aspects were present to the mind of the Assessing Officer and had been held in favour of the assessee is too far-fetched a proposition to merit acceptance. There may indeed be a presumption that the assessment proceedings have been regularly conducted, but there can be no presumption that even when the order of assessment is silent, all possible angles and aspects of a controversy had been examined and determined by the Assessing Officer. It is trite that a matter in issue can be validly determined only upon application of mind by the authority determining the same. Application of mind is, in turn, best demonstrated by disclosure of mind, which is best done by giving reasons for the view which the authority is taking. In cases where the order passed by a statutory authority is silent as to the reasons for the conclusion it h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... herefore in our view, no opinion was formed by the Assessing Officer in the original assessment proceedings in this regard. Since we have held that no opinion was formed by the Assessing Officer in the original assessment proceedings, therefore, the reopening made by the Assessing Officer on the same facts cannot be said to be bad in law and is in accordance with law mentioned hereinabove. By respectfully following the judgment of Full Bench of Hon ble Delhi High Court in the case of Usha International (supra) we uphold the reopening proceedings for the reassessment. Moreover, in the light of the above judgment referred hereinabove, it does not matter even if the reopening/reassessment are sought to be initiated on the basis of the material already available on the record in the original assessment proceedings. 6.2 Having decided issue No. 1 against the assessee, now the other issues, which remained to be decided is whether the disallowance of interest of ₹ 8,66,831/- paid to the partners towards the capital contribution can be disallowed by the ld Assessing Officer or not. In this regard, in the original assessment proceedings, it is a case of the assessee and also in the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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